Rupee to touch 62/$; RBI has tools to fight back: Macquarie

Nizam Idris, head of emerging markets FX Strategy at Macquarie expects the rupee to touch 62 against the dollar as the greenback is likely to see further strength ahead.

He says there is a clear preference now in the market to move out of high yielding as well as IG or Investment Grade and government bonds. "Places where we have seen a lot of inflows over the last two-three years are the ones that are currently seeing outflows and India is no different. In this case, a lot of the move is driven by the dollar," he told CNBC-TV18. Also read: RBI sells dollars as rupee hits record low: traders Below is the verbatim transcript of his interview to CNBC-TV18 Q: Very sharp cut on the rupee, how much more immediate pressure do you see on the currency and is India alone in this or are most emerging markets facing this kind of pressure? A: It is definitely not just India, it is dollar story obviously here. The strong US payroll numbers, which were announced on Friday was the main driver of the current dollar strength. There is a clear preference now in the market to move out of high yielding as well as IG or Investment Grade and government bonds. Places where we have seen a lot of inflows over the last two-three years are the ones that are currently seeing outflows and India is no different. In this case, a lot of the move is driven by the dollar. Going back to your first question, for me it will probably break 61/USD. The momentum of dollar strength is still well intact and 62/USD could be insight in my view. Q: There has been some murmur that the government might announce some steps like bond purchases or a new bond scheme etc, to try and stem the fall. Do you think those will be effective? A: No, I think it is right for Asian central banks to be prepared for more of these dollar strength and capital outflows. This is a reversal of what we have seen since the global financial crisis. At that time, when major central banks in the world started printing money, in India on monetary easing, the money has actually flowed into EMs. During that period as well, EM central banks had a lot of reserves, right? So this is the time when the reserves will be used to cushion the outflow. It is the reversal of the entire process. We have about USD 285 billion of reserve in India. I think the Reserve Bank of India (RBI) has a lot of tool to fight this.